What's Fannie Mae Got to Hide?

How can one of the largest financiers of home mortgages release its quarterly earnings but not its balance sheet? That's what the government-sponsored enterprise known as Fannie Mae did last week, contrary to standard business practice.

A Fannie official claimed that the omission was for "streamlining," even though shareholders need the data. In its delay, Fannie Mae only causes investors - and taxpayers - to wonder what it might be hiding.

Fannie Mae can't afford to totter. She and her cousin, Freddie Mac, have a combined debt of $1.5 trillion. These giants of the housing industry could put the US financial system at great risk if they fail.

Freddie Mac gave the markets the jitters last summer when it reported it had understated earnings by some $4.5 billion for 2000-2002. That brought down two top executives and prompted a federal probe. And last fall, Fannie Mae caused a rattle when it said it had made a $1.1 billion accounting mistake. Such incidents show a clear need for tighter regulation and more transparency.

Fan and Fred already have too much of an advantage over other lenders through a symbolic line of credit with the Treasury Department, and other perks. Fan and Fred also work at cross-purposes - they work to satisfy their shareholder's desire for profit, even as they're mandated to try to make home ownership more affordable. In addition, they devote too many resources to lobbying Congress and influencing the media.

Since Congress has faltered in further regulating Fan and Fred, the Bush administration is moving on its own. Either way, Fan and Fred would do much better not to resist.

Meanwhile, it's hoped Fannie is making sure its figures are right. Its current regulator, the Office of Federal Housing Enterprise Oversight, (OFHEO), already has indicated that a restatement of some of Fannie's financials could be possible.

Fannie Mae also is not making public the salaries of its top 20 executives, even though OFHEO has asked for them and the public deserves to know.

Preemptive regulation on these secretive financial giants is needed sooner, not later.